C-corp tax liability from previous owner

[Jamie.1979]

Jurisdiction

Pennsylvania

Is the current owner of a C-Corp responsible for tax audits from previous years. I am buying a c-corp, the seller is not disclosing all details of tax returns such as expense receipts etc. If IRS comes for an audit of previous years when i was not the owner, How will it work? Would they go to after previous owner? Or Would I be responsible ?

 

[adjusterjack]

Would I be responsible ?

You could be. Are you buying the TIN? Are you addressing this issue in your purchase contract? Why would you even buy this business if the seller won't give you the appropriate financial documentation?

I suggest you hire yourself a lawyer and a tax pro to guide you through this purchase.

 

[Tax Counsel]

Is the current owner of a C-Corp responsible for tax audits from previous years. I am buying a c-corp, the seller is not disclosing all details of tax returns such as expense receipts etc. If IRS comes for an audit of previous years when i was not the owner, How will it work? Would they go to after previous owner? Or Would I be responsible ?

The way it works is that the corporation is liable for the taxes owed. If you buy the corporation today and the IRS audits the corporation for the 2018 return and finds a deficiency, the corporation will have to pay that. The former owner would not be personally liable for it. On the other hand, you wouldn't be personally liable for it either. But the IRS could take whatever assets the corporation has to pay the tax liability. Because of this, when you buy a corporation you want as part of your due diligence to review all the tax matters of the corporation before you close the deal, as well as getting various representations from the seller regarding any knowledge he has regarding possible tax exposure. If you can't get that information and those representations, that's a red flag that there may be unresolved tax issues lurking there that the seller wants to hide.

 

[army judge]

How will it work? Would they go to after previous owner? Or Would I be responsible ?

The best thing you could do for yourself is NOT to buy this filthy, diseased, beast.

Run away from this deal, unless you desire to end up being financially fileted.

 

[zddoodah]

I am buying a c-corp, the seller is not disclosing all details of tax returns such as expense receipts etc.

 

[Tax Counsel]

You could be. Are you buying the TIN?

You don't buy a TIN. It goes along with the taxpayer to whom it was assigned. The TIN for a corporation is its EIN. That EIN remains unchanged for the entire life of the corporation regardless of how many different owners it has in that time. When you buy a corporation (as opposed to just its assets) you are getting everything that goes with that corporation — its assets, its liabilities, its reputation, etc. So whatever problems existed in the corporation before you buy it will still be there after. The sale changes nothing with regard to the corporation itself. It just changes who owns the shares.

Often buying the assets of the corporation rather than the corporation itself is the better way to go. You avoid the potential troubles that may be lurking there from past activity of corporation, like liability from tax audits, lawsuits from unhappy customers, or whatever. You also get basis in the assets equal to the purchase price that you can then use to depreciate those assets on your tax return. If you buy the corporation's stock, the corporation is stuck with the depreciated value of the assets. There is a possibility in some corporation sales of making an election to treat the stock sale as an asset sale for tax purposes, but both buyer and seller have to make that election.